How Australia's carbon pricing scheme works

July 1 (Reuters) - Australia on Sunday joins the European
Union and New Zealand in putting a price

Image From: carbontax.net.au

Australia on Sunday joins the European Union and New Zealand in putting a price on carbon emissions from coal and gas-fired power stations, smelters, to airlines and to local councils as part of a global effort to fight climate change.

It will cover about 60 percent of the nation's greenhouse gas pollution with the aim of pushing Australians to use cleaner energy and for industry and households to be more efficient in a country dependent on coal for electricity.

Australia accounts for 1.5 percent of global emissions, but is the developed world's highest emitter per-capita because coal is used to generate about 80 percent of electricity.

Here are details of Australia's scheme, which could be joined by trading programmes in South Korea and China by 2015 or 2016.

CARBON SCHEME ARCHITECTURE

Fixed-price carbon tax for the first three years, starting at A$23 a tonne in 2012-13 (July-June) and rising to A$25.40 in 2014-15.

No international carbon credits can be imported for use in this period. Carbon trading begins 2015-16, subject to three-year price ceiling of A$20 above the expected international carbon price for 2015-16, rising by 5 percent in real terms for the next two financial years. There will be a price floor of A$15, rising by 4 percent per annum.

In 2014, the government will set national emissions caps stretching out five years, consistent with a minimum overall reduction target of 5 percent by 2020 from 2000 levels.

International credits will be recognised from the start of trading mid-2015, although imports will be limited to the equivalent of half of national emissions.

Farming and land sectors will be excluded, though a separate Carbon Farming Initiative programme already in operation will help farmers generate carbon credits for sale to polluters through tree planting, farm animal waste management and other carbon-cutting practices.

Traders are also awaiting final rules on how to implement the floor price on international units. An Australian emitter that buys a foreign carbon offset, such as U.N.-backed Certified Emission Reductions (CER), below the floor price will have to pay money to the government to ensure it did not get the offset cheaper than A$15.

The government has released four options on how to calculate how much money emitters must pay. Which option the government decides on will have a big impact on how attractive it will be to buy offsets on a forward basis.

INDUSTRY COMPENSATION

Emissions-intensive, trade-exposed industries, such as aluminium and zinc refiners and steel makers, will be given free permits covering 94.5 percent of average industry emissions for the first three years, decreasing by 1.3 percent a year.

This means the effective carbon price will be A$1.30 a tonne for the biggest emitters.

Moderate emitters will receive free permits covering 66 percent of average emissions, reducing at the same level.

The dirtiest power generators will get A$5.5 billion in cash and free permits over five years, while steel makers will also receive assistance worth A$300 million over four years to encourage investment and innovation.

Government to negotiate shut-down or part-closure of the most emissions-intensive power generators before 2020, removing up to 2,000 megawatts of capacity. The government aims to replace older coal-fired power stations with cleaner generators.

ECONOMIC IMPACT

Treasury says the carbon tax would boost the consumer price index by 0.7 percentage point in 2012-13. The government says the economy would continue to grow strongly through the tax and later carbon-trading mechanism.

The average household electricity bill is expected to go up by $3.30 per week, with power prices to rise an estimated 10 percent in 2012-13. The Government is providing assistance worth $10.10 a week per household on average.

Employment would grow by 1.6 million jobs by 2020, with or without a carbon price.

The transformation of the energy sector is forecast to drive around A$100 billion in investment in the renewables sector over the period to 2050, the government says.

A Clean Energy Finance Corporation has been created to invest A$10 billion into the commercialisation of renewable energy and energy.

A Clean Technology Program worth A$1.2 billion will give grants for manufacturers to install new equipment to save energy costs and cut pollution.